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August 13, 2020
2020-2053

Employee Social Security tax deferral is voluntary, according to Treasury Secretary Mnuchin

When asked about the employee deferral of Social Security that is effective September 1, 2020, under President Trump's executive order, Treasury Secretary Steven Mnuchin told Fox Business News on August 12, 2020, that "you can't force people to participate." The statement was in response to the comment that employers face costs, uncertainties and headaches (implementing the program).

Secretary Mnuchin explained that there will be a level of certainty for employers that want to participate, adding that when President Trump is reelected he will ask Congress to forgive the Social Security taxes that employees defer under the executive order.

Some news sources have reported that employers are concerned that if they do not withhold the employee portion of Social Security tax, they face the risk of being held liable to pay those amounts. IRC Section 3102 directs employers to withhold Social Security tax from wages, leaving the question of whether employers and employees will be equally liable for the deferred amount should Congress not enact legislation washing away the debt. And, although the executive order provides that interest and penalty will be waived, the larger concern is liability for the underlying amount.

As previously reported, President Trump issued an executive order on August 8, 2020, allowing for the deferral of the withholding and employer remittance of the employee share of Social Security tax (6.2% of wages up to $137,700 and the comparable portion of the Tier 1 Railroad Retirement Tax (RRTA)) effective September 1 through December 31, 2020. The deferral is available only to employees earning less than $4,000 each biweekly payroll period, or $104,000 per year.

Ernst & Young LLP insights

The executive order leaves many unanswered questions and concerns, largely because it is limited in scope and federal legislation would be required for more extensive action.

  • Can employees opt out of the deferral if the employer choses to participate?
  • For employees who defer their Social Security tax obligation, when is repayment required, and if not repaid, what are the consequences to them and their employers?
  • Will employers have to gather consent from employees to defer their Social Security taxes, and if so, how long do employers have to complete this process?
  • Will special reporting of the deferred amount be required on Form W-2, and if not, how will the deferred amount of Social Security tax be reported on Form W-2, box 4?
  • How will the Form 941 (and comparable returns) be modified to accommodate reporting of the deferred amount, and how long does the IRS anticipate it will take to release the final version of the modified form?
  • If the employer did not (or could not) stop withholding Social Security tax by September 1, can amounts previously withheld on and after September 1 be refunded to employees?

To make an informed decision, it would be prudent for employers not to implement this deferral option until the IRS has answered these important questions in forthcoming guidance.

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Contact Information
For additional information concerning this Alert, please contact:
 
Workforce Tax Services - Employment Tax Advisory Services
   • Debera Salam (debera.salam@ey.com)
   • Kristie Lowery (kristie.lowery@ey.com)
   • Kenneth Hausser (kenneth.hausser@ey.com)
   • Peter Berard (peter.berard@ey.com)

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